2019 outlook: How Moneyfarm is navigating uncertainty

Traditions are sacred this time of year. Whether it’s office Secret Santa , the sherry-mince pie-carrot combo left out on Christmas Eve, or the slurry of financial market predictions on the year ahead. It’s reminiscent of the scene when Harry Potter is attacked by an onslaught of letters telling him about his place at Hogwarts.

This year, however, has been decidedly quiet. With such an uncertain backdrop setting the scene for 2019, and recent events highlighting just how quickly the news can move, who can blame commentators for taking a step back this festive season.

I’ve never really been one for hard and fast predictions, anyway. Too much certainty about the future can damage your financial health.

We firmly believe one of the most powerful tools you can have in your investor arsenal is time. Our investment portfolios are built with a strategic foundation, and are designed with a long-term outlook. We develop forecasts about returns that reflect long-term expectations about the global economy and financial markets.

Whilst our strategic view looks out to 10 years, we know the journey there won’t necessarily be smooth. To optimise the risk/return profile of our portfolios, we put a tactical overlay on our strategic asset allocation, which is Moneyfarm’s rebalancing process.

Moneyfarm’s Investment Team monitor the markets daily and our Investment Committee meets every month to discuss market and economic trends, review risk management and volatility, and make tactical allocations where necessary.

Financial markets in 2019

Whilst nobody has a crystal ball and it is difficult to predict anything with certainty in this climate, we do expect that 2019 will be a difficult year for risky assets and geopolitical noise will likely still have the power to drive markets.

Many themes are set to continue, with US growth continuing to outperform Europe, although this won’t do much to stop global growth winding slower. The monetary policy environment will be an interesting one as Central Banks try to navigate slowing growth with their interest rate programmes.

As expected, the US Federal Reserve (Fed) hiked interest rates by 25 basis points in the last meeting of 2018. Raising borrowing costs for the fourth time this year, the Fed ignored a stock market sell-off and defied pressure from the President.

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The committee did dial back its projections for its interest rate programme and economic growth in 2019. This suggests that policymakers will be more willing to adapt policy to the evolving backdrop, and will not choke economic growth for the sake of committing to their interest rate plans.

With less than 100 days on the calendar until the UK is set to leave the European Union, the outlook is no less uncertain. Whilst the final deal has been decided between the UK and EU’s negotiating parties, the Brexit bill has caused chaos in the UK, with few looking ready to back Theresa May in the mid-January Parliament vote.

Rather than narrowing down the potential outcomes, the options seem to have gotten broader, with ministers now publicly calling for alternative outcomes, whether these are a managed No Deal, a second referendum, or a Norway Plus arrangement.

The consensus is that a No Deal will be bad for markets and the economy, and there is a large bias against a No Deal. We see this reflected in sterling, which depreciates when the risk of No Deal increases.

The other side of the coin

Looking back to the end of 2017, European growth was robust, the euro was strong, and cryptocurrency was all the rage. Often, things can be taken for certain when they are not, given a lack of knowledge, skill or time to analyse the market robustly.

So what do the financial markets look like in a world where the consensus is wrong with its 2019 predictions?

Risky assets could be gifted with a more supportive environment, with US growth recovering, underpinning stronger earnings. If the US Central Bank sits on its hands, stalling its monetary policy programme, valuations could climb higher.

Investment strategy

Building the investment portfolios that will help our customers reach their goals takes so much more than just picking assets. An asset might be a great investment for one person, but not the best option for someone else – all because of something as small as time horizon, for example.

It’s crucial that investment portfolios are built to reflect the profile of the person that’s investing in them. By matching investors with portfolios that are built to reflect their time horizon, financial background, goals and appetite for risk, investment advice can help people make better long-term decisions with their money.

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Disclaimer: This publication is considered a marketing communication and as such, it does not contain and should not be taken as containing, investment advice, personal recommendation, or an offer of or solicitation to buy or sell any financial instruments. As a marketing communication, this publication has not been prepared in accordance with the legal and regulatory requirements to promote independent research, and may have been produced in conjunction with the MoneyFarm Asset Allocation Team, whose views and opinions may differ from the opinions expressed by other employees within the organisation, including Directors and Senior Managers. This material may include references to instruments that the firm may, from time to time, include in clients’ portfolios. In producing this material, MoneyFarm has not taken any particular investment objectives or financial situation in particular. MoneyFarm makes no representation and assumes no liability as to the accuracy or completeness of the content of this publication, which has been prepared utilising publicly-available information. This communication must not be reproduced without consent from MoneyFarm.